Mapping The Strategy Of Disruption & Beyond
Reverse-engineering and comparing the strategies of the old-guard taxi industry vs. Uber
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Welcome back to the latest edition of the Upstream Full-Stack Journal, helping you boost your effectiveness across the full end-to-end value delivery stack through strategy.
In this edition:
Reverse-engineering the role of strategy in disrupting the taxi industry
An alternative to disruption
Let’s dig in!
Getting around town
For many years, evenings out on the town in New York City always ended with an iconic yellow cab ride home.
You stood on a street corner and held out your hand, hoping a cab would see you and stop. Cabs were difficult to find, dirty, smelly, and I can remember more than one ride where you could clearly see the road passing through holes in the floorboard inches below your feet. Even as payments everywhere else gradually shifted to credit cards, for years the only reason I still had to go to a cash machine was to get money to pay for cab fares.
And every ride ended with an awkward and often combative conversation around the final cost and the tip.
The only exceptions were the elegant, curated experiences available riding in Lincoln Town cars, typically reserved for lavish business expense moments.
Shifting the balance
Starting in 2011, Uber began to offer their ride hailing service in New York, causing a major upheaval in how New Yorkers (and tourists) got around the city.
How did Uber succeed?
Let’s reverse-engineer the legacy New York City medallion taxi industry in force right before Uber appeared using the five questions of the Strategy Choice Cascade.
The legacy taxi model
Winning Aspiration: To maintain taxi industry domination
Where to Play:
Control the middle and low end of the New York City taxi business that connects drivers and riders with a limited supply of “medallions” (taxi operating licenses)
(Early medallion adopters achieved near monopoly power, which created a secondary medallion market resulting in speculation that boosted their prices up to over $1 million per taxi.)
How to Win:
Extract maximum cost from both drivers, charging them to lease the medallion, as well as customers via a pre-established fee structure
Must-Have Capabilities:
A limited supply of taxi medallions
A fleet of operational cars
A constant supply of drivers available 24/7 willing to work at the lowest cost possible
Enabling Management Systems:
Control medallion supply
Deep pockets for legal fees to use the courts to limit competition
Own and operate garages to manage and keep cabs operational
Maintain a constant supply of drivers
A new way to move in the city
Let’s compare this to Uber’s strategy coming in.
Taking advantage of the mobile and GPS capabilities of now ubiquitous mobile phones, Uber’s had a radically different set of strategic choices that worked backwards from a great customer experience.
Winning Aspiration: Create a frictionless riding experience
Where to Play:
Tech-savvy professionals
Start with Uber Black to compete with Town cars at the high end
Over time, branch into other levels of service with UberX to directly compete with yellow cab service
How to Win:
Offer a differentiated seamless cab experience
No more standing on street corners to hail a cab
No more haggling at the end of your ride
Must-Have Capabilities:
Design, build, & continuously upgrade & maintain Uber Rider mobile app across Android and iOS
Design, build, & continuously upgrade & maintain Uber Driver mobile app across Android and iOS
Mapping capabilities
Vet drivers
Product Management
UX Design
Strong engineering capabilities
Enabling Management Systems:
Support riders with customer service to investigate and resolve rider problems, questions, issues & complaints
Create, iterate, and continuously refine rider rating system for drivers
Data management – understand how to optimize rider and driver matching via location & other factors to optimize available car density
Map management – continuously refine mapping and GPS capabilities
Support drivers – Create, iterate, and continuously refine driver rating system for riders
Why Uber continues to win
If we look at the legacy taxi industry’s main function was simply a way to connect drivers and riders, Uber came in and did the same thing vastly better.
Of course, Uber had to overcome its first, and biggest leap of faith, whether riders would even get into a stranger’s car.
Through their tech-enabled strategy, Uber specifically targeted people comfortable with technology, and could enter and dominate markets and create a new marketplace for drivers and riders to connect, forcing conventional cab companies on the defensive.
Ultimately, the winners were both riders and drivers, who experienced better service at competitive cost.
While for a time, it seemed as though Uber would put all conventional cabs out of business, there now seems to be more of a coexistence.
Customers have generally benefitted as taxis have adapted by accepting credit card payments, becoming more tech-enabled, and generally improving their service.
A New Strategy Mental Model: What Lies Beyond Disruption?
The Uber story makes for one of the most dramatic examples of a digital upstart disrupting a legacy business protected for years by powerful interests.
Interestingly, the very nature of disruption makes for a consistently viral storyline, but there’s an entirely different alternative to consider, from the creators of the “Blue Ocean Strategy.”
Beyond Disruption
In their book, “BEYOND DISRUPTION: Innovate and Achieve Growth without Displacing Industries, Companies, or Jobs,” W. Chan Kim and Renée Mauborgne offer “non-disruptive creation” as a way of creating new markets through innovation.
Certainly, there are fewer and fewer opportunities for disruption
I highly recommend the entire book, but will share one mental model I found powerful: The Two Avenues of Nondisruptive Creation:
Address an existing but unexplored issue or problem outside existing industry boundaries that has been taken for granted
Address a newly emerging issue or problem outside existing industry boundaries that has occurred due to emerging changes
Kim, W. Chan; Mauborgne, Renée A.. Beyond Disruption (p. 138). Harvard Business Review Press. Kindle Edition.
In every challenge – COVID, inflation, supply-chain issues – lies an opportunity.
Kim and Mauborgne’s book offers insights into realizing these opportunities through innovation.
Check out the book website for more information.
That’s it for this edition!
Join me next time as we continue to go upstream to make you more effective through strategy.